FINRA Seeks Comment on Non-Attorney Representation in FINRA Arbitration

Virtually all customers of FINRA-registered broker-dealer firms (in essence, all broker-dealers) are required to arbitrate their disputes with those firms and their associated persons. Many of those disputes are required to be arbitrated in the FINRA Dispute Resolution forum.  Currently, FINRA permits parties to be represented by non-attorneys (NAR) (subject to a few restrictions  such as if state law prohibits it or if the person is currently
suspended or barred from the practice of law or the securities industry), primarily to allow parties a greater choice of and access to representation, even if not by an admitted attorney. In fact, several states still do not consider advocating for another in an arbitration to be the “practice of law,” so that non-attorneys would not be subject to unauthorized practice allegations for doing so in those states.

In its December 2015 Final Report and Recommendations, the FINRA Dispute Resolution Task Force “recommended that FINRA conduct a study to determine, among other matters, whether NAR firms are performing competently.  FINRA’s review revealed that there are a small number of NAR firms regularly practicing.” FINRA’s review also revealed “activities” of those NARs that call into question whether they have exploited their “clients” through that representation.

FINRA recently issued Regulatory Notice 17-34 seeking public comment on the efficacy of NAR representation in the FINRA arbitration forum.  Comments are due Dec. 18, 2017. I urge interested parties to submit comments, so FINRA can decide based on full input from all affected constituencies whether to take any further regulatory action with respect to NAR representation.

For those supporters (or haters) of the process of arbitration, even if you do not have specific expertise in FINRA arbitration, your input may be extremely valuable to ensure the integrity and reputation of arbitration more broadly.

3 thoughts on “FINRA Seeks Comment on Non-Attorney Representation in FINRA Arbitration”

  1. This is an interesting post, especially because we are learning about arbitration in our ADR class. One thing we have discussed, for example, is that arbitration is very flexible and can be as informal or formal as the parties would like – a true substitute for litigation. However, I wonder how the legal profession will evolve as arbitration becomes more popular and as non-attorneys become the norm.

    The biggest issue I have with allowing non-attorneys to represent others is that they are not subject to unauthorized practice allegations. And I feel that the interests of the disputing parties having fair representation, subject to discipline, far outweighs any minimal benefits non-attorneys may bring.

  2. I question NAR representation. Although individuals who have been disbarred from the securities industry are not allowed to actually represent claimants, that does not preclude such individuals from being involved in, or even being a principal in, a NAR organization.

    I am concerned about the possible lack of disclosure that may occur by NAR organizations since they are not regulated. In the same vein, I am concerned with the financial arrangements that a NAR organization might make with a potential client/customer, without any regulatory oversight, might disadvantage the client/customer.

    Disclaimer: I am a licensed attorney who has significant experience in NASD arbitrations on behakf of investors.

  3. As a finra arbitration attorney representing investors, I have seen both representation by attorneys and non-attorney representatives who represent clients in finra arbitrations. While there are some bad examples as in every group, I have also seen non-attorney representatives who perform quality services and win arbitration awards against licensed attorneys. Perhaps a problem is that without licensure, it is hard for the client to know what they are getting. For some clients though, a history of successful representations and awards is sufficient.

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